SNP's Credibility Has Crashed With the Oil Price

Throughout its modern history, the case for Scottish nationalism has rested strongly on the pillar of North Sea oil.

When it was first discovered in the seventies, the SNP used the slogan 'It's Scotland's Oil' to argue that oil strengthened the case for Scottish independence. Since then it has served as a fuel for resentment against the UK government and as a totemic answer to questions about an independent Scotland's prosperity. 'An independent Scotland will have oil' the argument goes, 'so its prosperity is secure.'

But lately the weakness of this longstanding pillar of the case for Scottish independence has been badly exposed.

The first reason is simple: the Scottish National Party always overstated the impact of oil. In their white paper on Scottish independence, they calculated that oil would bring in revenues of £6.8billion-£7.9billion in 2016/17. But last year the non-partisan IFS called them out, arguing that this was over optimistic. And not just a little bit optimistic. The think tank argued that that estimate overstated the revenues by more than 50%. It expected revenue in those years to be £3.3billion, under half of the SNP's estimates.

The second reason is that relying on oil means relying on big oil companies. You don't get small or medium sized enterprises in the oil sector because the costs of drilling and exploration are too high for them. But big companies have more influence on government than small ones. Especially as we rely on them for tax revenue, jobs, and social responsibility, so they have leverage over governments because they can always threaten to leave. So reliance on oil locks in a structural dependence on a few big companies.

The third reason it was never wise for the Scottish National Party to rely on the oil argument is that the harder the oil is to reach, the higher the cost of development, other things being equal. Exploration has moved towards fields in deeper water, raising development costs. That means that you cannot expect the cost of development today to be the same in the future. It is likely to get more expensive, by a factor that is hard to estimate with any accuracy.

The fourth reason is that nobody can know how much oil is left. The most authoritative figures are estimates. But the fact that the North Sea oil is finite puts an automatic shelf life on oil as a pillar of the case for Scottish nationalism. Intellectually honest Scottish nationalists should ask themselves what the case for Scottish independence is when there is no economically viable North Sea oil left under the North Sea.

But the fifth and main reason that this longstanding pillar of nationalism has been crumbling is that people are waking up to the fact that reliance on oil means reliance on forces beyond Scotland's control. Most notably: the price of oil. Relying on oil means relying on foreign powers which dictate the oil price. For a movement devoted to bringing control and sovereignty closer to the people it wants to represent, that is never a good move.

And as the oil price has dropped and dropped, the danger of relying on it have become ever clearer. As I write, oil is at about $45 a barrel. That means lower oil revenues, lower tax revenues, and less money for the Scottish government to spend on a better Scotland. As the IFS has pointed out, "the latest figures ... illustrate how sensitive an independent Scotland's public finances would be to volatility in North Sea revenues." If oil stays this cheap, as it may well do, an independent Scotland would have faced deep cuts to its public services which the UK is better placed to mitigate.

During the referendum campaign, Alex Salmond said that oil would generate £20.2billion in tax revenues in the first three years of an independent Scotland. Since the price has fallen, the Scottish secretary Alistair Carmichael has estimated that the figure would be closer to £4.7billion - about a quarter of Salmond's figure.

But the low oil price is not just a problem for tax revenues. It's also a problem for the oil industry and every Scot it employs. Company Watch, a company which devotes itself to 'tracking corporate financial health,' has estimated that as much as 70 per cent of the UK's publicly listed oil exploration and production companies are not profitable any more. I hope they survive. But the point about the risk of resting a case for nationalism on oil is made.

But even if we can't protect ourselves against falling prices, we can at least make sure that the oil in the North Sea benefit us all. As former Labour leader Neil Kinnock said as long ago as 1976, the UK should have invested its oil wealth into a sovereign wealth fund. This was the move which helped give the Norwegians the quality of life they enjoy today. It is still not too late to do so. It's worth noting that with oil as cheap as it is now an independent Scotland would be unlikely to be able to do this at all, as oil revenues would only cover current spending, leaving no margin to invest into a sovereign fund at all. Such a fund would be another boon to Scotland from the union.

Even if oil has passed its usefulness to the cause of Scottish nationalism, it could still serve to help those in society who need it most across the United Kingdom.